Several factors come into play when considering the fairness of the court’s ruling in this case. We have to look at whether Any Kind Checks Cashed acted reasonably in accepting a negotiable item from the payee. We also have to consider why the payee used the services of a check-cashing establishment in the course of conducting his business. Also, it is important to review the provisions that should be met when an entity tries to assert a protection as a holder in due course. Was Any Kind Checks an HDC in this case? This depends on what responsibility they had in accepting the negotiable instrument from Mr. Guarino. Did they exercise due care in accepting the item? These questions and others are important factors in determining Any Kinds’ status as an HDC in this case.
The court ruled that Any Kind did retain HDC status with regards to the second check for $5,700 but not for the check for $10,000. In reviewing the brief for the case, we can see that the company did attempt to reach Mr. Talcott, but were unsuccessful. Without his authorization, Any Kind acted on their own in approving the cashing of the check. There is an assumption on Mr. Talcott’s part that Guarino was aware there was a stop payment on the $10,000 item. His assumption was incorrect, but he has no obligation to report what actions he took with his financial institution.
Mr. Talcott was operating on an understanding that Guarino would not utilize the check based on the information that was relayed to him. Mr. Guarino, however, should have been aware of his conversation with Talcott and if he was acting reasonably, not pursued action on the $10,000 item. Any Kind has an obligation to act not only in good faith, but in fair dealing with consideration to all parties involved in order to maintain their status as an HDC.
The reason Any Kind Checks does not attain HDC status in the transaction with the $10,000 check is because they failed to act with fairness to all of the participants to the transaction. Any Kind Checks did not have prior notice of the check being dishonored by Mr. Talcott when Guarino attempted to cash it. However, because of its value, they show that they had reason to contact the maker for approval. It is also reasonable for Any Kind to take Mr. Guarino’s actions as suspect. As is pointed out in the brief, why would a small business owner, particularly one who is a broker of investments, utilize a check cashing business for this transaction rather than a traditional financial institution? This question in and of itself should give cause for concern to Any Kind considering their policy that any check over $2,000 requires approval.
A revision to Article 3 of the UCC added a provision for not only “honesty in fact,” but also for the “observance of reasonable commercial standards of fair dealing.” Because a reasonable party could reasonably consider Guarino’s actions as suspect, and outside of the commercial standards of fair dealing, the burden of proof is significantly higher in showing good faith and fairness toward all parties (including the maker of the instrument). We have another example in this situation to look at when analyzing if Any Kind took such care in this case.
When attempting to cash the second check, Any Kind felt it was necessary to speak with the Maker prior to taking action. Any Kind would not cash the check for Guarino without speaking with Mr. Talcott. Once they received approval from Talcott, and were not advised of any action against the check, they proceeded to cash the item for Guarino. Because of their actions on the second item, the court asserted that Any Kind does retain HDC protections. Any Kind is able to show proof of reaching out to the maker for authorization, and as such exert its claim for HDC protection with regard to the second item.
The court’s ruling is fair in this case considering the rather unconventional nature of the establishment. Generally, when a check is deposited for a large sum, a traditional financial institution will not provide full access to the funds until it can ensure it will be paid on those funds from the bank the check is written on. They may provide limited access until the item clears. In contrast, by cashing the check and giving those funds to Guarino immediately (minus their fee), Any Kind can not be seen as providing “value” to the instrument. This is a key factor in determining status as an HDC. Similarly, in Maine Family Fed. Credit Union, 727 A.2d 335, a credit union provided a customer immediate access to credit on a large sum of checks which were deposited into their account.
They did this without investigating if they would be paid by the drawee-bank and without holding the item for a time to allow for any irregularities or defenses to come forward. The jury in the case asserted that the credit union acted with subjective good faith, but did not exercise objective good faith in negotiating the item. While the credit union acted with what could be considered commercial standards, those standards did not result in fair dealings to all parties involved. In our case, Any Kind also acts with subjective good faith.
Taking the facts at face value, it can be asserted that they did not have any material knowledge of any information that would prevent them taking and negotiating the instrument. Subjective good faith does not carry with it a duty to exercise care nor a duty to investigate further when taking an instrument. With the revisions in Article 3 of the UCC, it is important for institutions, however unconventional, to act with both subjective and objective good faith when accepting and negotiating instruments.